General Growth Properties (GGP) has an idea for an economic stimulus plan: Let's all hang out at the mall! GGP is the country's #2 mall operator, behind Simon Property Group. The self-managed and self-administered real estate investment trust (REIT) has a portfolio that includes 131 regional shopping malls (some 128 million sq. ft. of space) in major US markets. GGP owns, manages, leases, and redevelops its malls, which generate more than $570 per square foot in sales each year. Some of GGP's shopping locations include Ala Moana Center in Honolulu and Fashion Show in Las Vegas. GGP also has an interest in a mall in Brazil. Top tenants include L Brands, Foot Locker, and The Gap.
GGP operates one reportable segment concerned with the operation, development and management of retail and other properties. The company makes most of its money from minimum rents (62% of total revenue in fiscal 2015) and tenant recoveries (29%). Overage rents, management fees and other corporate revenue comprises the rest.
Chicago-based GGP owns or has an interest in (through joint venture partnerships) 131 regional malls in some 42 states. Essentially all of its holdings are located in the US, with the exception of a shopping center in Rio de Janeiro, Brazil in which GGP has a 35% interest.
Sales and Marketing
The company's largest tenant is Limited Brands, which made up roughly 4% of the company's rental income in 2015. The three largest tenants (the second and third largest are The Gap, and Foot Locker) bring in a combined 9.4% of total revenue.
GGP spent $21.96 billion on marketing costs in 2015, down from $24.65 million and $27.63 million in 2014 and 2013.
GGP has struggled to grow revenue in recent years. Fiscal 2016 saw net revenue fall 5% to $2.4 billion after the sale of interests in Ala Moana in Hawaii and Bayside Marketplace negatively impacted on minimum rents. However, net income leaped 106% to $1.4 billion on the back of changes in control of investment properties. This marks a strong turnaround from the net loss GGP incurred four years ago. Cash from operations increased 12% to $1.0 billion due to a decrease in prepaid expenses.
GGP is looking for a sustained rebound in consumer spending to boost mall traffic, retail sales and, consequently, its own fortunes. The REIT is focused on building its portfolio of Class A regional malls.
The company continues to strategically acquire properties, either on its own or through partnerships, to extend its geographic reach and grow its revenue-generating property portfolio. In 2015, GGP took a 75% stake in a partnership with AustralianSuper to own and operate the Ala Moana Center in Honolulu, Hawaii -- a shopping center that generates a whopping $1,350 in tenant sales per square foot. In 2014, GGP partnered in 50-50 joint-venture which spent $1.78 billion toward buying the Crown Building in New York City. Also that year, via a joint venture, it purchased interests in five retail properties located in New York City, Miami, Bellevue (Washington) for a total of $690.2 million.
GGP is also is selling non-core assets to raise capital and pay off debt. The company's strategy is to create value among its existing portfolio by redeveloping and expanding properties. Another element of GGP's growth strategy is improving its balance sheet. The economic environment of low interest rates allowed it to receive better mortgage terms on its properties.
The economic downturn, which impacted the commercial real estate industry, hurt GGP. After struggling to handle debt levels of more than $25 billion, GGP filed for Chapter 11 bankruptcy protection in 2009 and represented one of the largest bankruptcy cases of its kind. It emerged the following year. GGP was able to exit bankruptcy after it restructured some $15 billion in debt and received nearly $7 billion in new equity from several investors including Canadian firm Brookfield Asset Management and hedge fund Pershing Capital. The Teacher Retirement System of Texas and the Blackstone Group also invested in GGP.
GGP revamped itself in 2010 by splitting into two companies. GGP hung on to its portfolio of mall and retail space, while a new publicly traded company, The Howard Hughes Corporation, took over its portfolio of planned communities and other real estate assets with development potential over the long term. GGP paid the heirs of the late American entrepreneur Howard Hughes $230 million to settle a dispute over the Summerlin planned community in Las Vegas, and in return named the new spun off company after him. Executives from Brookfield Asset Management and Pershing Square Capital Management are in charge of The Howard Hughes Corporation.